Moving its aggressive acquisition campaign into the field of diabetes management, Medtronic Inc., the world’s biggest medical device maker, agreed to buy Northridge-based MiniMed Inc. and an affiliated company for $3.7 billion, the companies said Wednesday.
As part of the deal, MiniMed’s founder, Alfred E. Mann, will step down as chairman and chief executive to devote attention to his other medical start-ups.
If approved by shareholders and regulators, the $3.28 billion cash purchase of MiniMed would be the third $3 billion-plus acquisition by Minneapolis-based Medtronic in three years.
In addition to MiniMed, a leader in the development and sale of diabetes management devices including insulin pumps, Medtronic agreed to purchase Mann’s closely held Medical Research Group Inc. for $420 million in cash and stock.
Medtronic said it will pay $48 a share for MiniMed, a 9.1% premium over Tuesday’s closing stock price, but a near doubling of the $25-per-share price seen in April, before rumors of a MiniMed sale began circulating.
Shares of MiniMed rose $2.77 to $46.77 Wednesday on Nasdaq on news of the sale. Medtronic, which has a $51 billion market capitalization and is known largely for its cardiac and neurological product lines, gained a nickel to close at $43 on the Big Board.
MiniMed will remain at its new Northridge headquarters and no layoffs are planned, according to Medtronic President and Chief Executive Art Collins.
Company officials and analysts said the deal, hammered out in round-the-clock sessions that ended at 4 a.m. Wednesday, gives both companies a shot in the arm.
For MiniMed, which has grown from $40 million in sales in 1994 to nearly $400 million anticipated for this year, Medtronic offers marketing muscle and distribution possibilities in the 120 countries where Medtronic is an established presence. It also opens the possibility for use of MiniMed’s pumps to treat illness other than diabetes.
And it offers a friendly harbor for a company that’s seen its share price drop from nearly $93 last September.
For Medtronic, MiniMed offers a beachhead into the field of technological management of diabetes, one of the fastest-growing chronic diseases in the country and one that affects an estimated 16 million Americans. The devices produced by MiniMed help patients manage their insulin needs and monitor glucose levels.
“It makes sense for both sides,” said Ryan Rauch, senior analyst on the medical device team of Adams, Harkness & Hill.
MiniMed, he said, is facing increasing competition in its franchise external insulin pump business. And he said there were questions about when the consumer version of the company’s continuous glucose monitor will be ready for scrutiny by the Food and Drug Administration and ultimately for the marketplace.
At $3.28 billion, the price is more than 14 times 2000 sales, Rauch said, noting that the average for medical device companies has been about six to eight times sales.
On the other hand, he said, Medtronic reported stagnant sales for its cardio-defibrillator implants, a core product line.
“What Medtronic bought was top-line growth,” Rauch said. “Now they’re in the fast-moving, $3 billion to $5 billion diabetes marketplace. And MiniMed offers them the best diabetes franchise.”
Medtronic also snaps up Medical Research Group, the main research arm for Mann’s often-stated goal of developing an artificial pancreas--two implanted devices that would automatically monitor glucose levels and adjust insulin delivery accordingly.
“That’s the Holy Grail for treating Type 1 diabetes,” said John Calcagnini, a medical device analyst for CIBC World Markets.
Mann and Terry Gregg, who joined MiniMed in 1994 and will remain on as president, said Medtronic has committed to continue working on the artificial pancreas.
In addition, Gregg said Medtronic’s “financial muscle” will help “grow this business in a much more rapid pace.
“And they know more about implantable products than anybody on the face of the Earth,” he said.
Mann, a billionaire who grew MiniMed from a department inside his former pacemaker firm into a company with a nearly $3 billion market cap, said MiniMed gains “a great partner with great resources.”
MiniMed is the largest of 10 companies launched by Mann, and perhaps the one closest to his heart. Even after the sale was announced he referred to it as “my baby.”
Although Mann’s specific role has yet to be determined, he and officials with both companies said he likely will serve as a consultant and will continue to be the public face of MiniMed.
Mann, who owns nearly 27% (or 17 million) of MiniMed’s shares and 34% of Medical Research, said he intends to devote more time to two of his other start-ups--Valencia-based Advanced Bionics Corp., which makes ear implants for the hearing impaired, and Sylmar-based Mannkind Corp., which is attempting to develop vaccines for cancer and allergies.
“I’ve done this six times now,” he said of selling one of his start-ups. “It’s not the end of the world.”
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MiniMed shares gained just 6% on Wednesday amid news of Medtronic’s takeover bid, reflecting the modest premium Medtronic is offering. But MiniMed shares have rebounded since early April, in part on takeover rumors.
MiniMed shares, monthly closes and latest on Nasdaq
Wednesday: $46.77, up $2.77
Source: Bloomberg News
Medtronic’s shares have pulled back this year, but the stock has been a stellar performer over the last six years.
Medtronic shares, quarterly closes and latest on the New York Stock Exchange
Wednesday: $43.00, up $0.05
Source: Bloomberg News
Markets: Mounting tech jitters drive stocks broadly lower. C4
Mergers: The 9.1% premium for MiniMed is below average. C4